Write off bad debt

A bad debt is an accounts receivable amount that you're unlikely to collect. When you're sure you can't collect payment from a customer, you can write off the bad debt to clear the unpaid invoice, balance your accounts receivable, and account for the expense. We recommend you consult with your accountant before writing off any debt.

If your business uses the accrual method of accounting, you can sometimes write off bad debt as a deduction. Get more info about bad debt from the IRS.

Note: If you’re using QuickBooks Desktop, here’s how to write off bad debt.

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Step 1: Check your aging accounts receivable

Review other invoices or receivables that should be considered ‌bad debt using the Accounts Receivable Aging Detail report.

Follow this link to complete the steps in product.

1. Find and open an Accounts Receivable Aging Detail report.
2. Check which outstanding accounts receivable should be written off.

Step 2: Create a bad debt expense account

If you haven't already, create a "bad debts" expense account.

Follow this link to complete the steps in product

1. Select New to create a new account.
2. From the Account Type ▼ dropdown, select Expenses.
3. From the Detail Type ▼ dropdown, select Bad debts.
4. In the Name field, enter “Bad debts.”
5. Select Save and Close.

Step 3: Create a bad debt item

Create a non-inventory item as a place-holder for the bad debt. This isn't a real item. It's just to balance the accounting.

Follow this link to complete the steps in product

1. Select New, and then Non-inventory.
2. In the Name field, enter “Bad debts.”
3. From the Income account ▼ dropdown, select Bad debts.
4. Select the I sell this product/service to my customers check box.
5. Select Save and close.

Step 4: Create a credit memo for the bad debt

1. Select + Create.
2. Select Credit memo.
3. Select the customer from the Customer ▼ dropdown.
4. In the Product/Service section, select Bad debts.
5. In the Amount column, enter the amount you want to write off.
6. In the Message displayed on statement box, enter “Bad Debt.”
7. Select Save and Close.

Step 5: Apply the credit memo to the invoice

1. Select + Create.
2. Under Customers, select Receive payment.
3. From the Customer ▼ dropdown, select the appropriate customer.
4. From the Outstanding Transactions section, select the invoice.
5. From the Credits section, select the credit memo.
6. Select Save and close.

Step 6: Run a bad debts report

You can run an Account QuickReport to check all the receivables you tagged as bad debt. To do this:

Follow this link to complete the steps in product

1. In the Action column of the bad debts account, select Run report.

Note: You can tell a bad-debt entity apart from your other customers by adding a note to their name. To do this:

Follow this link to complete the steps in product

1. Select the customer’s name.
2. Select Edit.
3. In the Display Name as field, enter “Bad Debt” or “No Credit” after the customer name.
4. Select Save.

Result

The uncollectible receivable appears on your Profit and Loss report under the Bad Debts expense account.

Related links

• Run an accounts receivable aging report
• Record invoice payments